нефть: The Impact of Russian Energy on Europe

нефть: The Impact of Russian Energy on Europe

Jeremiah Goodpaster

Introduction

All year long gas prices have slowly been increasing. First twenty cents, then another thirty cents with rates expected to climb all summer. The cost of groceries has doubled as a result of those increased fuel costs. Your paycheck is not going as far, and expenses just keep rising. Shortages of fuel have caused long lines and wear nerves thin. Worse winter is coming, and prices are expected to be twice as much as last year due to political issues with Russia. Russia continues to threaten to stop energy supplies to the region due to sanctions by the European Union and the United States. Then on the coldest day of January, Russia cuts all energy supplies and halts shipments oil and gas via pipelines to Europe in retaliation to the sanctions. Now, there is no gas coming to your country. It is going to be a long, cold winter. But next year’s elections are coming, and the opposition party to the incumbents are running on a platform to repair relationships with Russia and vowing to reduce energy prices.

While this scenario is fictitious, a very similar event did take place in January 2009. Gazprom, a Russian state-owned company, “halted nearly all its natural gas exports to Europe . . . sharply escalating its pricing dispute with neighboring Ukraine. The cutoff led to immediate shortages from France to Turkey.”[i] Russia was able to use the halting of gas as leverage to force the EU to pressure Ukraine into price concessions. The impact of the cut-off was felt far and wide in energy-dependent Europe. For example, “Schools and kindergartens in Bulgaria closed down because utilities needed time to switch to alternative fuels. In Bosnia, where gas operator Sarajevogas said the situation was close to a humanitarian disaster,”[ii] the EU Commission and European governments were sent scrambling to find a solution. This was neither the first nor the last time Russia used its energy dominance to influence policies or regulations to their favor.

In the last decade, we have seen a re-emergence of Russian influence and aggression in Europe. In 2007, the Russian government was suspected of carrying out a major cyber-attack on the Estonian state, attacking multiple government and private systems across the tiny nation.[iii] In 2008, Russian forces invaded the country of Georgia in support of separatist groups in South Ossetia and Abkhazia[iv] using a form of hybrid warfare commonly known as the Gerasimov Doctrine. Building on the non-kinetic success of the cyber-attack on Estonia, Russia added both regular and irregular troops. In 2014, using this new hybrid warfare, Russia again backed a separatist movement in Ukraine and seized Crimea.[v] The Doctrine covers five component elements: political subversion, proxy sanctuary, intervention, coercive deterrence, and negotiated manipulation according to Dr. Karber from the Beaumont Institution.[vi] Within these five components a Whole of Government (WOG) approach is utilized. Energy is a critical component to Russian economy and National Security strategy. The use of energy plays a significant role in Russia’s political subversion, coercive deterrence, and negotiated manipulation aspects during Hybrid Warfare operations in Europe. The use of energy to allows Russia to stay below the threshold of violence and the possible activation of Article 5 Collective Security of the NATO charter.[vii]

A Problem That Isn’t a Problem

The Russian-European relationship has a long, contentious history marked with distrust, animosity, and conflict. Energy since the fall of the Soviet Union has become the new battleground on the continent. Many policymakers, academics and research analysts argue that European dependence on Russian energy could lead to a geopolitical advantage for Russia over Europe, especially the EU-28 and those nations in NATO. But there are those who disagree and would take issue with the argument that Russia could use energy to achieve political subversion, coercive deterrence, or negotiated manipulation in the modern era. Most counterarguments against the threat usually fall within two categories, interdependence or legislation.

Researchers Shirov, Semikashev, Yantovskii, and Kolpakov address the issue of interdependence in their journal article “Energy Union of Energy Conflict? (Eight Years After),” stating “Russia’s powerful energy potential and the structure of the Europeans Unions energy consumption makes both parts quite dependent on one another”[viii]—making this dependence a double-edged sword. They point to the fact that a lack of energy market diversity on both actors’ parts would result in mutual negative outcomes if energy supply or sales were reduced. To further expound on the counterargument of interdependence one can look to Casier’s journal article “Russia’s Energy Leverage over the EU: Myth or Reality?” where he expands on this dilemma, illustrating the problem by describing the prisoner’s dilemma that both actors find themselves in. Casier states:

Interdependence creates costly effects, which, in the case of asymmetry, are higher for one party than for the other. . . country A to be Russia and country B to be an EU member state importing high quantities of Russian natural gas. Interdependence sensitivity then refers to the immediate costly effects for A, i.e., before it had the chance to change its policies. There is a high degree of interdependence sensitivity for country B if interactions with A create considerable costly effects in the short term. The EU state undergoes immediate costly effects if Russia decides to cut off gas supplies.”[ix]

Casier goes on to explain that such a move is limited by the fact that the EU has other sources and “alternative policy options that make Europe sensitive, but not vulnerable,”[x] and Russia risks long-term damage to their markets over the short-term victories they could win.

Others turn to current or proposed legislation to prevent Russia from exploiting their energy dominance to succeed in their foreign policy goals. Pointing to the fact, the EU has recognized the potential threat and begun looking at legislative methods to prevent Russian manipulation on the market. Passing the Third Energy Package regulations aimed at “liberalization and integration of natural gas markets” and including “unbundling the ownership of gas production from that of gas distribution,” according to Siddi,[xi] the goal is to break up the monopoly from Russian state-run Gazprom and Rosneft and stop them from controlling both ends of the energy market. Furthermore, the European Commission announced goals to “address long-term security supply challenges,”[xii] listing five key areas such as “Completing the internal energy market and building missing infrastructure links to respond quickly to supply disruptions and redirect energy across the EU to where it is needed.”[xiii] These examples show that while most acknowledge the potential risk, they also believe that proactive measures would help ensure that Russian energy poses less of a threat to European security.

A Bear In the Backyard

While those are valid points and steps to limit Russia’s effectiveness at using energy to further their goals and influence, they also reaffirm that there is a present threat. While Casier’s description of the prisoner’s dilemma is correct that there is a level of interdependence at play, those who see this as a deterrent fail to account for the Russians’ willingness to endure.  My analysis is given the vertical power structure that Putin has established in Russia, the Russian people, willing or not, would endure more than those in Europe, whom given the democratic nature of European nations would be capable of putting more political pressure on their elected officials than those in Russia. In addition, to the differences in social resiliency of the populations, Casier and others fail to address attempts by Russia to diversify their energy sales, by seeking closer relationships to China and other markets. As one of the top producers of energy, and the top consumer of energy, this shift would provide Russia with alternative markets that could potentially protect any long-term loss in revenue from disruptions in Europe. According to a 2018 Sputnik article, the ambassador from Russia to China stated “Bilateral trade volume surpassed $97 billion from January to November, an increase of 28 percent year-on-year. And it will reach and exceed the stated target of $100 billion.”

The relationship between Russia and Europe has long been one of intimidation and coercion. During the Cold War, the threat of nuclear annihilation reigned supreme. The atomic threat may have been reduced with the end of the Cold War. But as Baran states in “EU Energy Security: Time to End Russian Leverage,” the use of intimidation and coercion is far from over: “Russian power and influence are no longer measured in ballistic missile accuracy or bomber production but in miles of pipeline constructed and barrels of oil per day exported, and for Europe, this energy invasion has already begun.”[xiv] Russia has adapted to the new interconnected world intertwining both public and private efforts into a coherent national system to increase their ability to secure national goals.

As stated earlier, energy plays a significant role in Russia’s political subversion, coercive deterrence, and negotiated manipulation in Europe.  This is extremely more prevalent in the Baltic States.[xv] The Baltic States, as former Soviet satellite states, failed to tie into Western Europe infrastructure and energy systems after the collapse of the Soviet Union resulting in the region being ripe for manipulation and targeting. To further highlight the problem faced by the region, Grigas, in her 2012 study, claims that “20 years after the end of the Soviet Union the Baltic states remain completely dependent on Russian gas, despite an apparent conviction throughout the region that this relationship has been, and remains, economically exploitative and a continuation of Soviet subjugation.”[xvi] This dependence on Russian energy and lack of infrastructure development has resulted in the region becoming a “gas island”[xvii]  cut off from other means of receiving energy supplies that are not directly tied to Russia. The Baltic states represent the most vulnerable to Russian energy manipulation and Grigas explains how:

Due to their gas transport and delivery infrastructure . . . As in Finland, Bulgaria, Serbia and other Balkan countries, Baltic gas transport and infrastructure was built in the Soviet era. Russian gas is brought to the Baltic states via Gazprom-owned pipelines. Gas pipelines supplying Estonia from northern Russian territory first pass through Latvia before they arrive in Tallinn. Latvia is fed through two primary pipelines. One comes directly from Russian territory and continues to Estonia; the other passes through Belarus and Lithuania. Lithuania is supplied by a pipeline that arrives from Belarus.[xviii]

Russia has used this dependence to their advantage in gaining concessions or disunified responses by the European Union and European nations.

For example, Baran cites, “In January 2003, Russia ceased supplying oil via pipeline to Latvia’s Ventspils Nafta export facility. This embargo, which followed Riga’s unwillingness to sell the facility to a Russian energy company, continues to this day.”[xix] Many in the region fear that not being a transit state for Russian energy to other parts of Europe means that the prospect of the EU placing pressure on Russia is decreased—because most the other nations in the EU would not be impacted by supply shortages. In recent months Russia has increased this fear by developing contracts and closer relationships both economically and militarily with Belarus, which is a key transit state for energy into the Baltics and Europe. In October 2018, according to the Belarus News article “Belarus, Russia Sign $500M worth of Contracts at 5th Forum of Regions,” Russia agreed on a $500 million contract to export Belarusian goods to the Russian Federation. Of those goods, two-thirds are said to be machinery, tools, equipment, and electronics,[xx] critical industries for the nation. This move increases ties between Russia and Belarus, which has been supportive of Russian policies in the past.

Evidence shows that the Baltic States are not the only nations in jeopardy. Lang and Westphal point to the Nord Stream 2 as a possible security issue: “Aside from the outlined conflicts in energy policy, the Nord Stream 2 project also touches on another sore point in the European Union: the open disagreement within the EU-28 over where future relations with Russia – including energy relations – should be heading.”[xxi] The pipeline would supply large amounts of gas directly to Germany and bypass many other EU nations with many critics believing this would put Germany in a position to be influenced by Russia and effectively remove other EU nations from the decision-making process. Russia has worked to utilize legal means to develop controls and gain advantages over the energy sector in Europe and abroad to avoid regulations and disruption of their influence. Contracts like those with Belarus work to provide Russia with the means to influence directly or indirectly as needed. Taking advantage of globalization, Russian major state-owned oil and gas companies Gazprom and Rosneft have entered into joint ventures and purchases of shares in European and other global domestic oil and gas companies throughout the world.

An example is the Baku–Tbilisi–Ceyhan pipeline (BCT). The BCT is a multinational joint venture headed by British Petroleum (BP) and eleven additional international oil and gas corporations. The pipeline, according to BP, “currently carries mainly ACG crude oil and Shah Deniz condensate from Azerbaijan. In addition, other volumes of crude oil and condensate continue to be transported via BTC, including volumes from Turkmenistan, Russia and Kazakhstan”[xxii] to European markets. The route of the pipeline was purposely built to avoid Russian territory to help diversify European markets. The problem is that of the twelve companies that form the consortium, five companies have shares owned by either Gazprom or Rosneft.[xxiii] The largest shareholder for the BCT pipeline, BP, is in a joint venture with Rosneft following the acquisition of TNK, which held a 50% share in the TNK-BP venture. In 2013, Rosneft finalized the purchase of TNK-BP, becoming one of the largest oil companies in the world approved by the Russian government and European Commission. Rosneft acquired 100% of TNK and BP in return received $16 Billion. BP also purchased 16% shares in Rosneft following the merger and placed a Rosneft executive on their board.[xxiv]

Additionally, in 2012 Rosneft signed shareholder and operating arrangements with Statoil, a Norwegian leading oil company, to conduct a joint venture in offshore exploration, securing 66.67 % in equity shares.[xxv]  It is this type of joint venture that opens many nations and corporations to Russian hybrid warfare and the elements of political subversion, coercive deterrence, and negotiated manipulation. The Russian state-owned companies use the access and partnerships in a variety of ways from donating to candidates to extortion to forcing governments to take more pro-Russian or softer stance when it comes to policies. For example, shortly after members of the United Nations, Europe Union, and NATO members condemned the annexation of Crimea from Ukraine in 2014. In retort Russian companies cut off all gas exports through Ukraine to Europe, resulting in a muted response to the annexation. This response highlighted a possible rift to be exploited by Russia to fracture or slow a coherent, combined action by the EU and NATO. As it stands, Russian Gazprom alone has amassed fifty percent shares in forty-two companies in eighteen countries, eighteen companies with one hundred percent in ten countries, shares in twenty of the twenty-eight EU nations and seventeen of the twenty-nine NATO countries.[xxvi] Any attempt by the European Commission or nations to regulate and force the selling of shares owned by Russian companies (which are publicly traded) could expect to be challenged in the courts, another method used in Russia hybrid warfare known as Lawfare.[xxvii]

Where Does That Leave West?

There are numerous groups on both sides who continue to argue the validity of Russian energy as a potential weapon capable of being wielded against Europe or NATO. As previously stated, Russian economics are dependent on global markets for their oil and gas, and movements to limit the effectiveness of Russia’s ability to manipulate energy against its adversaries through both regulations and changes in existing law are valid. But the energy security situation in Europe remains critical because the European Union at this point and for the foreseeable future is still the biggest buyer of Russian energy and highly dependent. Reports from the European Commission as recent as November 2018 state that “The EU imports more than half of all the energy it consumes. Its import dependency is particularly high for crude oil (90%) and natural gas (69%), including some who rely entirely on Russia for their natural gas.”[xxviii] The threat extends to the United States as well, with all but five of the twenty-eight members of the EU also having membership in NATO.[xxix]

With growing tension on the European continent, the risk of escalation between Russia and NATO or the EU is becoming more prominent. The use of a non-traditional means to achieve warlike objectives will force NATO and others to address their current definitions and plans for security. For instance, the threshold for activation of NATO’s Article 5 collective defense clause does not address energy market manipulation or other non-kinetic attacks such as those seen with the cyber-attack on Estonia. Determining to what extent NATO members are vulnerable to Russia’s use of energy as a weapon could help design deterrents and policies to counter the threats. Failure to address the implications of Russia’s energy dominance and European dependence will continue to be significant security issues for the European Union and NATO.

If Russia has the ability through legal, production, and distribution means to adjust the flow of energy to Europe, then they can also control the amount of pressure they exert on a nation to influence their decision-making process. Until the European Commission and NATO agree that the problem of one country is a collective problem for all, Russia has the momentum. I contend that the threat faced by the smaller nations like the “gas islands” of the Baltic States or periphery nations like Bulgaria is the most significant risk and recommend infrastructure development to connect these regions to alternative means of energy with other Western European states to provide redundancy to the energy system as a priority.

Recommendation

I offer the following as solutions to some of the touch points faced by NATO members and Russia’s hybrid warfare use of energy. To help mitigate some of the energy threat, require fifty percent (or one percent) of the proposed two percent of GDP spending for defense of NATO allies be used to develop alternative energy methods, infrastructure, and technology to include production of natural gas, solar, nuclear, and hydro power. This increase energy independence, job creation, innovation, and development—with an added bonus to the United States as the current lead producers of green tech. This solution would require emplacing a time limit for completion and the development of joint redundancy. Priority should be to connect the Baltic States to the rest of Europe or remove the “Gas Island” effect currently felt by the region.

NATO and the EU should implement plans and coordination that examines Russian (state or private) held assets in each of the member states to determine critical vulnerabilities in the supply chain from end product to critical components i.e. gas pipes and refinery components. The goal would be to a) identify the feasibility of disruption of services and b) determine if critical components manufacturing can be spread out across member states to reduce interruption or manipulation of supply lines.

The views expressed in this article are the author’s and not necessarily those of the U.S. Department of Defense or U.S. Army.

Biography

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Radin, Andrew. Hybrid Warfare in the Baltics: Threats and Potential Responses. Santa Monica, CA: RAND Corporation, 2017.

Rosneft. 2012. “Rosneft and Statoil Sign Shareholder Agreements for Russian Offshore Exploration Joint Ventures.” Staff. 2012. https://www.rosneft.com/press/releases/item/114451/.

ROSNEFT. 2012. “Rosneft and Statoil Sign Shareholder Agreements for Russian Offshore Exploration Joint Ventures.” Staff. 2012. https://www.rosneft.com/press/releases/item/114451/.

Rosneft Staff. 2013. “Rosneft Finalizes TNK-BP Deal, Becomes World's Largest Oil Producer.” Razor Tie Artery Foundation Announce New Joint Venture Recordings | Razor & Tie.   Rovi Corporation. March 21, 2013. https://web.archive.org/web/20140429184759/http://rt.com/business/rosneft-finalize-tnk-     bp-deal-largest-oil-producer-583/.

End Notes